Casino owner Icahn weighing deal for TWA

Thursday, Jan. 11, 2001 | 11:26 a.m.

SUN STAFF AND WIRE REPORTS

Financier Carl C. Icahn, owner of three Las Vegas Casinos, signaled Wednesday that American Airlines will have to deal with him if it wants to buy TWA.

Icahn, who owned the airline in the 1980s and early 1990s, may start a competing debtor-in-possession financing for the bankrupt TWA, one executive close to the bankruptcy negotiations told the New York Times.

Icahn has a long-term contract to sell millions of dollars worth of TWA tickets at steep discounts that he negotiated in 1993 in exchange for a $190 million loan.

Icahn sells the tickets through his Las Vegas company Lowestfare.com. Also in Las Vegas, Icahn owns the Stratosphere and two Arizona Charlie's hotel-casinos.

Icahn's TWA ticket contract, which expires in September 2003, is now worth more than $250 million, one Wall Street analyst estimated.

American executives said that they believe they can cancel Icahn's contract as part of TWA's bankruptcy.

"That is one of the contracts we are not interested in being party to," American Chief Executive Donald Carty said Wednesday in announcing American's dramatic bid to acquire most of the TWA assets as well as important US Air assets.

Icahn may have a weak case under bankruptcy law to enforce the contract. But he has been buying TWA bonds in recent months, analysts and traders said, giving him a potential source of leverage.

He is believed to own anywhere from a third to one half of the airline's $140 million in 11.5 percent secured bonds, and possibly some of the $50 million in 12 percent secured notes as well.

At current prices of 75 cents on the dollar, the investment is worth less than $100 million -- not a big financial gamble for Icahn. But assuming American and TWA try to force bondholders to accept less than the full value of their claims, Icahn, who declined to comment Wednesday, could try to contest the restructuring plan.

"It puts TWA on notice that they have to pay a fair price," said one analyst. "I expect Icahn to be very loud and boisterous."

The Wall Street Journal and USA Today also reported on Icahn's possible maneuvering against American Airlines.

By providing debtor-in-possession financing, Icahn would get a priority claim over other TWA creditors for repayment and an influence over how the airline is reorganized. Some TWA creditors believe selling the airline in pieces would yield more value.

An Icahn victory "would be a serious challenge to the American deal," said Harvard Law School professor Elizabeth Warren, a bankruptcy law expert. "Essentially, he's trying to increase his stake in TWA and improve his place at the bargaining table. It's an unusual, but very creative, tactic."

TWA Chief Executive William Compton said he believes the bankruptcy filing and subsequent sale was the best possible outcome for creditors.

But people close to Icahn say Compton could have avoided bankruptcy by accepting a refinancing offer from GE and Boeing. They say Compton and TWA Chairman Gerald Gitner vetoed the offer after learning Jay Alix & Associates, the nation's largest turnaround firm, would be brought in to run the airline. None of the firms would comment.

American's pilots are also expected to try to extract concessions from management before they give their approval.

American plans to absorb TWA's 2,400 pilots as well as 500 pilots from US Airways. Carty said that the US Airways assets the company is planning to buy from United require 1,100 pilots, creating new opportunities for American's pilots. He also expects the growth that would result from the acquisition of TWA to create more pilot jobs.

"Each one of these transactions works for our pilots," Carty said. "Once they look at them they will be positive."

The Allied Pilots Association, which represents American's 11,000 pilots, received a briefing from management Wednesday and had no comment, a spokesman said.

The union and management have been trying to improve their relationship in recent months but mutual suspicion remains strong.

Two years ago, a federal judge fined the union $45.5 million for illegally disrupting American's operations after pilots called in sick to protest its acquisition of Reno Air. Last year, American agreed to forgo the fine if the pilots would agree to a contract amendment allowing the company to fly more regional jets. But the deal was voted down by members.

The two sides are now scheduled to begin contract negotiations in July and the pilots will be looking for significant pay increases. American is currently in the midst of increasingly acrimonious negotiations with its flight attendants.